Over recent decades, new ideas and innovations have positively impacted our profession and benefited the clients we serve. Many of these innovations have centered around business models and pricing. With the ever-changing advisor landscape, it’s important to be open to new innovations and new ideas.
On this Elementality podcast, Kate Holmes, a CFP® Women’s Initiative council member, joins Reese. Kate’s knowledge of both asset management and financial planning has led her to work with financial service professionals in over 35 countries. And as serial-entrepreneurs, Reese and Kate talk about what led to their start-up experiences and the difficulties they both faced in coming up with pricing models for those ventures.
Show Notes
https://innovatingadvice.com
Podcast Transcript
Kate Holmes:
I quickly fell in love with going into companies, sitting down with employees from your rank and file straight out of college to your executives. You never knew what questions you were going to get. Boy, does that keep you on your toes. Over and over again, regardless of the people, the questions were not, “What did the S&P 500 do last month?” or “What’s the Federal Reserve doing?” It was, “I’m getting divorced. What should I be thinking about? I’ve got $40,000 of credit card debt. How do I handle my student loans?”, all these questions about life.
Abby Morton:
Welcome to Elementality. I’m Abby Morton, CFP and producer of our podcast here at Elements. I love being a financial planner, but I know it’s a challenging profession as well. That’s why the number one goal of our show is to help you prosper as an advisor as you better connect with your clients. We know your time is very valuable. Plan on a good return when you spend it here with us.
Reese Harper:
Welcome to another episode of Elementality, everybody. I’m your host, Reese Harper. I’m very excited today to be joined by a new friend of mine, who has a lot of background not only in delivering advice to end clients, but who’s been quite involved in providing frameworks, models, ideas, shaping for the industry at large, Kate Holmes. Kate, thank you so much for joining us and welcome to the show.
Kate Holmes:
Yeah, Reese, this is awesome. Thanks for having me and delighted to be new good friends.
Reese Harper:
Yeah, this is going to be fun. There’s a very few guests who have been both part of the CFP Board and financial advisory consultant and FinTech involved women who have been involved in client-related, direct-to-consumer work and advisory work. You had a really interesting and diverse background that I think will be really valuable to our audience. I’m going to start by walking through some of your background, if you don’t mind, and asking you some questions.
Reese Harper:
I guess, there’s a couple of things on your LinkedIn profile that crossover, but I was curious what Belmore Financial was, Founder and CEO. This is 10 years ago. Prior to that, I can see that you were in a lot of different roles leading up to that, but I wanted to understand, “Was that moment in time a big move or should we start, I guess, previous to that?”
Kate Holmes:
I think that definitely is a big point in life and even talking about what got me there. So, I did start Belmore Financial in early 2013. It was started as a completely virtual, fee-only monthly retainer, no AUM financial planning business. That came after an epiphany I had while I was actually getting on 405 North in Bellevue, Washington, sitting at the on ramp, stuck in a light. I just had this lightbulb moment where I was like, “I need to create a business that I would want to work with as a client.” So, the seven and a half years prior to that, I actually was in my mother’s RIA. She had a very successful tiny RIA in Seattle. I joined that after the Australian Government kicked me out.
Reese Harper:
Okay, was that Horizon? That’s what I can see. Is that Horizon?
Kate Holmes:
Yeah.
Reese Harper:
All right. So, your mom was in the industry. That was your first influence in the industry then.
Kate Holmes:
Yup, yeah. So, growing up, I did some hourly work for her and helped out with little things, but honestly, I never thought I wanted to be in business. The idea of sitting in an office was just dreadful to me and in front of a computer. I was like, “I want to travel and I want to go see the world.” So, I actually got a degree in photography in Australia. I wanted to be a travel photographer and work for Lonely Planet, because I love people and I love culture and all the similarities and differences. So, you’ll see that carry throughout my story-
Reese Harper:
That thread, right on.
Kate Holmes:
and everything that I have managed to weave into financial planning.
Reese Harper:
Founding Member at XYPN, well, that was probably after or just after you started Belmore, right?
Kate Holmes:
That was about a year and a half after.
Reese Harper:
Okay. When did you know, “I’m going to go do my own thing. I’m not going to buy inherit, work with mom”? That’s a big deal, right? I don’t know this story. You don’t have to share anything you’re not wanting to share.
Kate Holmes:
Yeah, I’m an open book.
Reese Harper:
My RIA, Dentist Advisors that I built for the majority of my career was always facing this father-son, mother-daughter dynamic, where it’s like, “Do I stay here and take over mom’s practice, or do I go do my own thing in the brave world, right? It’s a little scary, but I get to carve my own way and be my own human. I’m not a mom’s shadow anymore.” What’s this dynamic that happened for you? What was that like? What made you make the decision to do your own thing?
Kate Holmes:
Yeah, I think it took a couple of years. This is the conversation that I have with a lot of people around the world that are in the same position that I was in. There isn’t a clear cut answer. It is different for everyone, as you would have experienced through all the dentists and everything. But for me, gotten a degree in photography, I came in and I didn’t have a degree in finance or economics or business or anything. So, I just learned how they did everything.
Kate Holmes:
I actually surprisingly latched on to the business side. Interestingly, what most people would never guess, I joined in 2006, the business was already from day one back in the late ’90s completely virtual. So, all growing up, I saw that it was this virtual business. They didn’t do video meetings, but everything was done by phone. So, my mom had already set up this lifestyle practice long before that was a thing. I even helped the business go paperless in 1998.
Reese Harper:
Oh, wow.
Kate Holmes:
So, all of this forward thinking stuff that so many people are still struggling with today, even a year into the pandemic, is stuff that was just natural to me from day one. So, coming into the business, they actually specialized a lot in managing 401(k) plans. I love that. I quickly fell in love with going into companies, sitting down with employees from your rank and file straight out of college to your executives. You never knew which questions you were going to get. Boy, does that keep you on your toes. Over and over again, regardless of the people, the questions were not, “What did the S&P 500 do last month?” or “What’s the Federal Reserve doing?”
Kate Holmes:
It was, “I’m getting divorced. What should I be thinking about? I’ve got $40,000 of credit card debt. How do I handle my student loans?”, all these questions about life. I honestly spent years. I was embarrassed. People were like, “Who can help me?” I was like, “I actually have no idea, because all we did was asset management.” So, I swear to you, it was in Barnes and Noble. I came across the Idiot’s Guide to Financial Planning. That’s the first place I ever heard about CFP certification. I was like, “Whoa.” It puts all these puzzles of all the things that people are asking about, and it brings them together.
Kate Holmes:
So, I started going down that path. And then once I learned that, “financial planning,” I’m using air quotes here, is you create an 80-page document that you give to a person that tells them what the next 40 years of their life is going to be like, I was like, “Oh, heck no.” That’s the craziest thing in the world to me. That made no sense to me at all.
Reese Harper:
Especially coming from someone, you’re very spontaneous, you’re world traveler, you’re a photographer. You’re going, “No one’s going to tell me anything about what life’s going to be like, right? If you tell me, I promise I will do not that.”
Kate Holmes:
Exactly. I had this moment in 2009 going into a company, it was all engineers. We all remember 2009, a little bit of stress happening. This guy came in. I will never forget. He wasn’t angry, but he just dropped a two-inch binder on the table. He looked at me and he goes, “According to this, I have failed.” I was like, “What do you mean?” It was a financial plan that he paid $5,000 for that was done in 2006 that never contemplated a global financial crisis. This guy was devastated.
Kate Holmes:
So, again, I was like, “None of this makes any sense to me.” Only doing AUM didn’t make sense, because I ran all the day-to-day. I ran the billing. I knew exactly what we did for clients, what they paid for us. I was like, “Yeah, I could be handed a very lucrative business, but it just inherently doesn’t actually make sense.”
Reese Harper:
It wasn’t motivating.
Kate Holmes:
Financial planning didn’t make sense. So, that was my epiphany. I was like, “Okay, if none of this makes any sense and none of it is anything that I would be a client of.” That was that moment where I was like, “I need to create something totally different.”
Reese Harper:
This is where I want to dig a little bit. This is the idea of fixed fee, retainer, advice only. How are we going to pull this off? Tell me how you started, what you feel like the product eventually became. What happened? What did you learn? There’s been a lot of people who have tried this, not a lot, but some, I would say. Take Alexa von Tobel’s large firm that was bought by Northwestern Mutual, monthly financial planning. What’s the name of that one? It was LearnVest. Is that right?
Kate Holmes:
LearnVest, yup.
Reese Harper:
LearnVest. The people that I know who worked there, it was a struggle to make that model work. Did you learn the same thing or did you feel like, “No, it works really well, but it doesn’t scale beyond a couple of people”? What did you learn from that experience?
Kate Holmes:
Yeah, so in all honesty, when I started it, I wanted it to be… You know how they have learning hospitals? I guess being in Seattle, you’d think Grey’s Anatomy. I actually wanted to build a business that was the equivalent of a learning hospital, because we know the other challenge is bringing people into this profession where they can actually be client facing and young women and people of color and all the diversity challenges we have. So, it’s like, “I want to create something that allows that.”
Kate Holmes:
So, I created the business targeting people in their 20s to early 40s, because spending all the years that I did talking with people, I learned a lot of what I don’t want to do. I talked to so many people, even if they were well off in their early 60s that again, worked their entire career, missed their kids growing up, didn’t take vacation. I was like, “I don’t want to do that. I want to hit those people when they’re making those major life decisions.” So, I did that.
Kate Holmes:
The first year, the average age of my clients was 57. It was fascinating. I even had high net worth clients that had $10 million plus. I was working with professionals and radiologists and major business owners. It was fascinating, because they loved that I had no conflicts of interest. They loved that I wasn’t managing assets and that they could call me for anything. I did it also in a modular way, because again, that whole doing everything at once, it’s too overwhelming. Everyone’s like, “How do we get advice that sticks?”
Kate Holmes:
So, I was like, “You don’t do everything at once. If you’re changing anything else in your life, if you’re going on a diet or exercising, you don’t do it all at once.” So, I cut everything down into monthly and we just tackle one thing a month. We don’t move on until that’s actually done and then that builds momentum. All these things that we know about how do you create habits and everything, I brought that in and I loved it. I wanted to keep building it. It was, I think, easy for me to find clients in that time because nobody else was doing it. So, we’re spread pretty quickly and people kept referring.
Kate Holmes:
My mom even referred a lot of clients, because they never did financial planning, but it was just because I started speaking out in the media so much and other financial planners are like, “How do you do that?” I was consulting at multinational firms around the world and speaking internationally. It got to a point where I realized I could make a bigger dent in the profession by helping more advisors better help more people than I could in my own business.
Reese Harper:
I mean, during that time, you were probably asked to get involved with or got involved with Financial Planning Board of Standards or the CFP Board. Is that correct?
Kate Holmes:
Yup.
Reese Harper:
So, did that let you see a different way to have impact?
Kate Holmes:
So, CFP board, I have been on the Women’s Initiative Council since it was formally designated a council in 2014.
Reese Harper:
So right after you started your firm.
Kate Holmes:
I’ve been on the council since then. I still am. I’m still part of the Women’s Initiative Council. So, that’s carried throughout. Financial Planning Standards Board was funny. I was actually speaking at a national roadshow in South Africa. I was a keynote speaker and I met the CEO of Financial Planning Standards Board, who was also down there presenting. The day I left for Africa, my husband moved us to Denver. So, I asked him, I was like, “Well, where is FPSB located?” He said, “Denver.” It turned out the headquarters was six blocks from where we moved.
Reese Harper:
No, that’s cool, just convenient. You’re still involved there or not?
Kate Holmes:
I’m not. No. So, I started out consulting there for about a year. That was a whole lot of fun. Again, I love all the cultures and the global stuff. And then they ended up creating a role for me and were super supportive and said, I could keep my financial planning business and I could still fit in client meetings. But in all honesty, there’s so much work to be done at the global level overseeing CFP certification of 26 countries and trying to grow to 40 by 2025. I was like, “I don’t want to stretch myself too thin.”
Reese Harper:
Okay, okay, that makes sense. And then the most recent foray is your current firm, Innovating Advice. I’m just going to call it a consulting practice. Is that fair?
Kate Holmes:
That’s fair.
Reese Harper:
So, who’s the audience for that practice?
Kate Holmes:
So, I realized after I left FPSB… I got to travel all over the world. I’ve been in 35 countries, worked with financial planners, worked with amazing people. It’s great work that they’re doing. But I realized that being at the global standards level is really far removed from working with practitioners, which I love and helping with their businesses and bringing innovation. It dawned on me that with all the travel and everything I’ve done, I’m one of very few people that have the experience that I have. So, whether I’ve been at a conference in Russia or Brazil or Bulgaria or South Africa, I continually have the same conversations.
Kate Holmes:
I realized all around the world, everyone thinks they’re in their own lane, but actually, we’re all on the same road and we’re all going in the same direction. There are so many more similarities in how financial planning is progressing around the world than there are differences. So, I wanted to bring those conversations together. So, I started the Innovating Advice Show Podcast a little over a year ago and feature innovative awesome financial planners from all over the world who are doing such cool things from, “How do you do really great client experience stuff? How do you niche down? How do you do marketing? How do you switch over your fees?”
Reese Harper:
That’s awesome. So, where your heart’s at right now is helping advance the industry through interacting with firms directly, trying to figure out whether it’s fee billing, whether it’s positioning, whether it’s client experience. You’re just trying to find the way that you can use your experience to help augment their business. Is that a fair summary?
Kate Holmes:
Yeah. Honestly, there is a lot of good that came out of the pandemic. Everything that I’m doing now is actually directly related to the fact that we had the pandemic and the people that I’ve met. As many people I knew around the world, my web of people has gotten exponentially larger. I’m meeting so many amazing people that I’ve since partnered up with that are looking at a lot of the challenges in the profession. There’s a whole lot of talking that people do and that we’ve all done, right? We’ve all been part of conversations. When are we going to get to the doing something about it? So, that’s really my big focus is moving from talking to doing.
Kate Holmes:
So, one of the initiatives that I’ve got, so I just launched a brand new community in the US called the IA or Innovating Advice Community. That’s actually a sister community of one in the UK called Next Gen Planners. They’ve got this great initiative that they started last year. We know one of the big challenges you go to financial planning conference and not only is it the same speakers, but they all tend to look the same. We keep talking about, “How do we get more diverse people?”
Kate Holmes:
So, they realized instead of, for their own annual conference, paying to fly the same international speakers over and paying their heavy speaking fees, they’re going to reinvest that into actually getting coaches and putting people with little to no public speaking experience in financial planning, training them to actually deliver a presentation. So, that’s going to be a global conference going across South Africa, North America, Australia, and the UK, where we’re taking financial planners around the world. So, stuff like that that we’re like, “How can we really truly make a difference and do awesome things with impact?”
Reese Harper:
Okay. So, I’ve got a lot of questions. We’ve got through your background now, super interesting background. We’ve got volunteer service. We’ve got board experience. At global standards level, we have some foray into a new model of advice and modular/micro interactive planning. You’ve got a lot of background. I’m going to try to pull from some of this and expose maybe some of your philosophy to advisors now in some of these different areas. Let’s go back to Belmore. When you decided to start your own firm, what did you learn about this modular/micro interaction planning paradigm? What did you learn about that?
Kate Holmes:
I think it’s fantastic. Here’s the thing, I’ll say across the board and I know I railed on AUM and all that. Different things work for different people. So, I fully recognize my own bias in things, I but I’m totally open to it. I’ve had lots of conversations with different people. People like different music. Different things work for different people.
Kate Holmes:
But I think the modular planning thing is super, super powerful, because it builds that momentum and it builds so much stronger relationship. I’ve talked with so many people over the years that have worked with financial planners. They’re like, “Yeah, I’ve paid him five grand up front and they did a lot of work and hand me this document. Now, I talk to them twice a year for an hour, just check in.”
Kate Holmes:
There’s not a real relationship there. A general statement, that’s definitely not the case across the board. I don’t really love long meetings. They exhaust even me. I have so many meetings that are 20 minutes. I’m like, “Let’s focus on this one topic. Let’s get it done. Let’s keep moving forward.” And then that just built so much stronger relationship that I got invited to a client’s 50th birthday, I got invited to another client’s child’s first birthday.
Kate Holmes:
You just get so much more intertwined in their life that when something happens, employee benefits change or they get a document they don’t understand, they don’t feel like they have to wait for that annual or semiannual meeting. It’s inherent. They just call you.
Reese Harper:
How did your pricing models change when you were there? Did you have the same pricing model the whole time, or did you vary it?
Kate Holmes:
Like everyone, you start out way undervaluing yourself. I don’t know how that’s going to work. So, I think I started out at something probably $100 a month or $150 a month or something.
Reese Harper:
So, it was a fixed fee for access to you. You never did hourly.
Kate Holmes:
No, no, I didn’t want to do hourly, because then you’re chasing that. I know people with incredible hourly businesses that have been wildly successful. I’ve even got prospects that come to me that want the hourly model, but I ended up going pretty quickly to… I think it was $1,500 up front. Because even if you’re doing modular, there’s a lot more work upfront and I wanted people to be committed. We know psychology. If people don’t pay for things, they don’t value them. So, $1,500 upfront and then $250 a month.
Reese Harper:
Okay. And then did you find yourself ever needing overtime to raise fees, because your business got better, you were doing more, and then you were like, “I’m being undercompensated for the way I used to do it”? Because you’re probably innovating like crazy along the way, delivering more and more value. At some point, you had to look back and go, “Oh, wow. I probably need to raise that.” Did you ever have to go through fee increases, or were you able to just keep grandfathered people in and then raise fees on the new people?
Kate Holmes:
Yeah, I didn’t raise fees on any existing clients. Maybe I did, the people that start out at the very beginning. But the other thing that is really important and I’ve talked with a lot of financial planners around the world is being really, really clear on what you provide and how it works and having those clear boundaries. I learned that in the beginning, some clients called way too often or treated me like tech support if they couldn’t figure out how eMoney worked. I actually had to let a client go, because that’s all they ever do was calling and asking me technical questions. I was like, “This isn’t good.” So, being really specific.
Kate Holmes:
So, even if you have a maximum of three different service levels, which I had two, I think, then let people know. If they start to creep up and need more, then it’s not that you’re raising fees. You’re just saying, “Hey, Mr. Jones, you’re now moving into our platinum level of service. Let me know if you’d like to go that route and we can do that.” Or if they start out really complex and then things slow down, you can say, “Hey, we’ve got all the complex stuff handled. Let’s actually move you down into here.” So, that changes the conversation. That way, clients don’t think their fees are going up. They understand that they’re just moving into a different level of service. So, service model, to me, that’s a huge thing.
Reese Harper:
I can totally relate to your emotional connection with not going down the AUM route. I can totally relate to that. I’ve experienced that many times in my career, just going, “This is not correlated at all to the work I’m doing as a financial planner.” To some degree, it’s correlated to complexity, but not as directly as the fee structure would have you think. But I run into a lot of people that run fixed fee models that then go, “This has been harder than I thought to scale, getting people to come in underneath me and work on this model. Clients were willing to pay me that, but I guess, I was a little more experienced, a little more seasoned.
Reese Harper:
I got this newer advisor that has a little less experience than me. I think I have to lower my fee for them to be willing to pay to that person what they were willing to pay to me.” I see a bunch of consumers still opting in for AUM based models. A lot of consumers are like, “It seems like there’s a conflict of interest there, but I like the idea that maybe the planning fee goes away or the planning fee goes down or as I get more AUM with you, I’m not having to write checks.”
Reese Harper:
At Dentists Advisors, for 10, 15 years, we’ve really struggled to decide, “Is there really a better model here?” Because we’re delivering a ton of value. A lot of clients, given the option, are still opting for paying less planning fee and billing the assets, add a little bit higher rate. What’s your feeling on all of this? This is a big topic that I’m sure a lot of advisors are debating in their own firm. What’s your general feeling as a consultant? As you’re feeling as a consultant, is that the same feeling you had when you’re a practitioner? How has that changed if so?
Kate Holmes:
It’s definitely evolved over time. That’s the thing. Working with so many people all over the world and just seeing how different things work and whether it’s regulatory based, we have a lot of limitations in our own thinking that we put on ourselves of people saying, “Oh, nobody’s ever going to go for this in my region or my country.” So, it really does depend on what works for each business. But the thing that you said there a few times, Reese, is the value that you were providing. So, where I have the big challenge and I did in my mom’s business and she knows this is it was an assets under management only. There was no financial planning. There was no anything. That’s what just really got in my head and bothered me is we’re putting together these portfolios.
Kate Holmes:
But as I went through a CFP certification program and became a CFP professional, which I still am, looking at this, now, I was like, “What are we creating portfolios for? We don’t know anything about these people. So, we don’t actually know what their required rate of return is. So, how is this working?” Tracking everything the way I did, knowing how much the clients with $30 million were paying us versus the clients with $300,000 and how much they called us and how much service they needed. It just didn’t make any sense.
Kate Holmes:
I couldn’t confidently say you should be paying us this amount of money. That’s where the challenge comes in. So, if you are actually providing true value beyond just managing investments, then that’s a different conversation. If the clients want to pay on an AUM thing, that’s great. It’s good to have choice. I don’t think we should ever just have one thing, because different people are going to want different options.
Abby Morton:
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Reese Harper:
Yeah, it just seems like it would be way easier for all of us if pricing were more transparent, even the AUM model, which I’m still an advocate for to some degree, because it’s the experience I’ve had of scaling up a firm. It’s worked and it still works. But I look at it and I’m like, “It’s still very difficult. Even if you are very clear on your deliverable and you’re very clear on your business model and you’re very clear on the hours that it takes, there’s always a point where the younger clients with the least amount of AUM, they either have to pay a bigger planning fee than they’re comfortable with or you’re going to have to eat it for a little while, while they build up assets.”
Reese Harper:
It’s almost like asset management fees are a way that to finance your way down-market to people that don’t have means. I don’t love that, because it puts a lot of pressure on me as a business. I’m like, “Dude, I’m losing my shirt.” But then on the other side, it’s like, “Well, you’re at year three or year four, then I can pick up my margin. I know I’m more profitable than I need to be on the back end, but I lost my shirt in the front end.” Well, if I give clients the option of paying me $500 a month right now, I might have a conversion rate that’s much lower than if I say it’s $195 or $295 plus an AUM fee. So, for me, it’s just really difficult to get down-market quite as far if I’m using financial planning fees as the only way to be able to access that market.
Reese Harper:
In my own practice, one thing that’s been challenging is I feel like AUM provides a way for me to access people earlier in their career when they don’t have as much money. They’re essentially underpaying me now. Over time, they’re going to overpay a little bit. But as long as I’m delivering a lot of value, it’s sometimes easier to get people to engage when the fixed fee is lower. I personally don’t advocate for AUM-only models. I don’t think that gets the level of commitment that financial advisors and clients need from their advisor.
Reese Harper:
But if I’m charging $500 a month versus $200 a month, I’m going to get night and day different adoption rates and conversion rates on the front end. Meaning $500 a month, most people tell me, “Sorry, I can’t afford it, but $200 a month, yeah, I could do that.” Well, if I do $200 a month without any AUM fees, depending on the level of complexity I’m engaged in, it might not be profitable. You see that and you see that challenge. It sounds like you’re more open to it maybe now as a consultant than maybe your first few months of looking at it as a practitioner.
Reese Harper:
Why do you think your philosophy has changed a little bit? Because I sense the energy from you when we were first talking from that fixed fee model, that transparency. I love it, too. I think I know your answer here, but I’m curious, what made you change over time and become more tolerant or are you just letting advisors off the hook and they need to do fixed fee?
Kate Holmes:
Well, I’ll say two things. First, I don’t advocate for advisors taking on clients or keeping clients that aren’t profitable. I got a lot of arguments with that, but it also so often doesn’t end well. This is the thing. I always turn around. I always encourage advisors, turn everything you do around and be on the other side of it. Would you want to know that you are an unprofitable client? So, maybe you’re the last person that’s going to get a call or you’re not going to get the same service. Wouldn’t you rather go somewhere where you are at the same level as everyone else?
Kate Holmes:
So, when people are thinking about this, you think about the AUM. Really when people are younger, the thing that really dawned on me about that is even working with people that had a good chunk of money, even $1 million plus that was tied up in their 401(k) plans or deferred comp or into their business, they didn’t actually have assets to manage. I was like, “These people still need advice. There isn’t an option to take an AUM fee.”
Kate Holmes:
So, that’s where we have to think about by doing AUM-only, we’re actually excluding a huge portion of the population from being able to get advice. So, if you are an AUM firm, this is a great way to actually bring in those younger clients, allow this modular planning or the fixed fee model. That way, they can actually build a book themselves working with clients that they relate to and get some revenue in in a way that actually is profitable at the level that they’re at.
Reese Harper:
I totally agree with that. I personally feel like we’re well past the days where financial planners can just say, “I have an AUM minimum.” We can’t do that anymore. This is my opinion now, speaking as… I can’t. I’m not a consultant. So, I can just opine. But I think you can’t have AUM minimums without eliminating some really great clients. I would rather have a fixed fee minimum than an AUM minimum. That’s all. It just seems just as easy.
Reese Harper:
Just in the past, we haven’t had the technology and the billing mechanism. It hasn’t been as easy, but it seems like the debate for me is whether AUM fees present a huge conflict in that world where you still have a fee minimum, because I’ve watched a lot of my employees now for quite some time and I just don’t see them responding to AUM incentives. I don’t see them responding. They’re not giving advice with that context. It’s just the way we bill, some clients are turned off by it. Some clients like it. Some prospects won’t engage you at all if you have an AUM fee.
Reese Harper:
You just got to decide where to position yourself in the market. The same people though that say no to AUM fees at all and they’re very focused on fixed fees, they tend to be quite particular in terms of their demands. They can be very fee sensitive if you ever tried to raise your fee too. So, I’m always still in a tough middle ground here going, “I just don’t see enough evidence yet for fixed fees taking over AUM fees completely.” I’m curious how you see that as a consultant.
Kate Holmes:
I don’t think they’re going to anytime soon. Again, it’s because different people are going to want different things. There are some people out there that only want their assets managed. They don’t actually want to talk about the other things. Possibly [inaudible 00:35:45]. That was actually the challenge that I had in my mom’s business. That was my breaking point when I was like, “I have to leave and do something, because we kept trying to implement financial planning.”
Kate Holmes:
But the clients, because they’ve worked with the firm for 20 years and they’re like, “You’ve never asked me about this stuff. Why do you ask me about it now? We’re only talking about investments. You just tell me what the stock market’s doing.” They were so resistant to broadening that conversation. I was like, “Okay, that’s fine.” I was like, “They’re totally comfortable with AUM, and they didn’t want to do financial planning.” So, I’m not going to put that on them. Along those lines, Reese, you asked earlier about how do you grow that flat fee, fixed fee, monthly fee business and how challenging it is. We’ve seen it be challenging for a lot of people.
Kate Holmes:
One of the things I’ve said for years, I’m still fascinated by this and I don’t know if I’ll do anything about it at any point, but I genuinely don’t actually believe that all of the people that are starting their own businesses using that model or any other one for that matter truly want to be business owners, right? Everyone I talked to, they’re like, “Oh, I wanted flexibility. I want to be able to do this stuff.” I was like, “There’s pretty good thousands of-”
Kate Holmes:
I quickly fell in love with going into companies, sitting down with employees from your rank and file straight out of college to your executives. You never knew what questions you were going to get. Boy, does that keep you on your toes. Over and over again, regardless of the people, the questions were not, “What did the S&P 500 do last month?” or “What’s the Federal Reserve doing?” It was, “I’m getting divorced. What should I be thinking about? I’ve got $40,000 of credit card debt. How do I handle my student loans?”, all these questions about life.
Abby Morton:
Welcome to Elementality. I’m Abby Morton, CFP and producer of our podcast here at Elements. I love being a financial planner, but I know it’s a challenging profession as well. That’s why the number one goal of our show is to help you prosper as an advisor as you better connect with your clients. We know your time is very valuable. Plan on a good return when you spend it here with us.
Reese Harper:
Welcome to another episode of Elementality, everybody. I’m your host, Reese Harper. I’m very excited today to be joined by a new friend of mine, who has a lot of background not only in delivering advice to end clients, but who’s been quite involved in providing frameworks, models, ideas, shaping for the industry at large, Kate Holmes. Kate, thank you so much for joining us and welcome to the show.
Kate Holmes:
Yeah, Reese, this is awesome. Thanks for having me and delighted to be new good friends.
Reese Harper:
Yeah, this is going to be fun. There’s a very few guests who have been both part of the CFP Board and financial advisory consultant and FinTech involved women who have been involved in client-related, direct-to-consumer work and advisory work. You had a really interesting and diverse background that I think will be really valuable to our audience. I’m going to start by walking through some of your background, if you don’t mind, and asking you some questions.
Reese Harper:
I guess, there’s a couple of things on your LinkedIn profile that crossover, but I was curious what Belmore Financial was, Founder and CEO. This is 10 years ago. Prior to that, I can see that you were in a lot of different roles leading up to that, but I wanted to understand, “Was that moment in time a big move or should we start, I guess, previous to that?”
Kate Holmes:
I think that definitely is a big point in life and even talking about what got me there. So, I did start Belmore Financial in early 2013. It was started as a completely virtual, fee-only monthly retainer, no AUM financial planning business. That came after an epiphany I had while I was actually getting on 405 North in Bellevue, Washington, sitting at the on ramp, stuck in a light. I just had this lightbulb moment where I was like, “I need to create a business that I would want to work with as a client.” So, the seven and a half years prior to that, I actually was in my mother’s RIA. She had a very successful tiny RIA in Seattle. I joined that after the Australian Government kicked me out.
Reese Harper:
Okay, was that Horizon? That’s what I can see. Is that Horizon?
Kate Holmes:
Yeah.
Reese Harper:
All right. So, your mom was in the industry. That was your first influence in the industry then.
Kate Holmes:
Yup, yeah. So, growing up, I did some hourly work for her and helped out with little things, but honestly, I never thought I wanted to be in business. The idea of sitting in an office was just dreadful to me and in front of a computer. I was like, “I want to travel and I want to go see the world.” So, I actually got a degree in photography in Australia. I wanted to be a travel photographer and work for Lonely Planet, because I love people and I love culture and all the similarities and differences. So, you’ll see that carry throughout my story-
Reese Harper:
That thread, right on.
Kate Holmes:
and everything that I have managed to weave into financial planning.
Reese Harper:
Founding Member at XYPN, well, that was probably after or just after you started Belmore, right?
Kate Holmes:
That was about a year and a half after.
Reese Harper:
Okay. When did you know, “I’m going to go do my own thing. I’m not going to buy inherit, work with mom”? That’s a big deal, right? I don’t know this story. You don’t have to share anything you’re not wanting to share.
Kate Holmes:
Yeah, I’m an open book.
Reese Harper:
My RIA, Dentist Advisors that I built for the majority of my career was always facing this father-son, mother-daughter dynamic, where it’s like, “Do I stay here and take over mom’s practice, or do I go do my own thing in the brave world, right? It’s a little scary, but I get to carve my own way and be my own human. I’m not a mom’s shadow anymore.” What’s this dynamic that happened for you? What was that like? What made you make the decision to do your own thing?
Kate Holmes:
Yeah, I think it took a couple of years. This is the conversation that I have with a lot of people around the world that are in the same position that I was in. There isn’t a clear cut answer. It is different for everyone, as you would have experienced through all the dentists and everything. But for me, gotten a degree in photography, I came in and I didn’t have a degree in finance or economics or business or anything. So, I just learned how they did everything.
Kate Holmes:
I actually surprisingly latched on to the business side. Interestingly, what most people would never guess, I joined in 2006, the business was already from day one back in the late ’90s completely virtual. So, all growing up, I saw that it was this virtual business. They didn’t do video meetings, but everything was done by phone. So, my mom had already set up this lifestyle practice long before that was a thing. I even helped the business go paperless in 1998.
Reese Harper:
Oh, wow.
Kate Holmes:
So, all of this forward thinking stuff that so many people are still struggling with today, even a year into the pandemic, is stuff that was just natural to me from day one. So, coming into the business, they actually specialized a lot in managing 401(k) plans. I love that. I quickly fell in love with going into companies, sitting down with employees from your rank and file straight out of college to your executives. You never knew which questions you were going to get. Boy, does that keep you on your toes. Over and over again, regardless of the people, the questions were not, “What did the S&P 500 do last month?” or “What’s the Federal Reserve doing?”
Kate Holmes:
It was, “I’m getting divorced. What should I be thinking about? I’ve got $40,000 of credit card debt. How do I handle my student loans?”, all these questions about life. I honestly spent years. I was embarrassed. People were like, “Who can help me?” I was like, “I actually have no idea, because all we did was asset management.” So, I swear to you, it was in Barnes and Noble. I came across the Idiot’s Guide to Financial Planning. That’s the first place I ever heard about CFP certification. I was like, “Whoa.” It puts all these puzzles of all the things that people are asking about, and it brings them together.
Kate Holmes:
So, I started going down that path. And then once I learned that, “financial planning,” I’m using air quotes here, is you create an 80-page document that you give to a person that tells them what the next 40 years of their life is going to be like, I was like, “Oh, heck no.” That’s the craziest thing in the world to me. That made no sense to me at all.
Reese Harper:
Especially coming from someone, you’re very spontaneous, you’re world traveler, you’re a photographer. You’re going, “No one’s going to tell me anything about what life’s going to be like, right? If you tell me, I promise I will do not that.”
Kate Holmes:
Exactly. I had this moment in 2009 going into a company, it was all engineers. We all remember 2009, a little bit of stress happening. This guy came in. I will never forget. He wasn’t angry, but he just dropped a two-inch binder on the table. He looked at me and he goes, “According to this, I have failed.” I was like, “What do you mean?” It was a financial plan that he paid $5,000 for that was done in 2006 that never contemplated a global financial crisis. This guy was devastated.
Kate Holmes:
So, again, I was like, “None of this makes any sense to me.” Only doing AUM didn’t make sense, because I ran all the day-to-day. I ran the billing. I knew exactly what we did for clients, what they paid for us. I was like, “Yeah, I could be handed a very lucrative business, but it just inherently doesn’t actually make sense.”
Reese Harper:
It wasn’t motivating.
Kate Holmes:
Financial planning didn’t make sense. So, that was my epiphany. I was like, “Okay, if none of this makes any sense and none of it is anything that I would be a client of.” That was that moment where I was like, “I need to create something totally different.”
Reese Harper:
This is where I want to dig a little bit. This is the idea of fixed fee, retainer, advice only. How are we going to pull this off? Tell me how you started, what you feel like the product eventually became. What happened? What did you learn? There’s been a lot of people who have tried this, not a lot, but some, I would say. Take Alexa von Tobel’s large firm that was bought by Northwestern Mutual, monthly financial planning. What’s the name of that one? It was LearnVest. Is that right?
Kate Holmes:
LearnVest, yup.
Reese Harper:
LearnVest. The people that I know who worked there, it was a struggle to make that model work. Did you learn the same thing or did you feel like, “No, it works really well, but it doesn’t scale beyond a couple of people”? What did you learn from that experience?
Kate Holmes:
Yeah, so in all honesty, when I started it, I wanted it to be… You know how they have learning hospitals? I guess being in Seattle, you’d think Grey’s Anatomy. I actually wanted to build a business that was the equivalent of a learning hospital, because we know the other challenge is bringing people into this profession where they can actually be client facing and young women and people of color and all the diversity challenges we have. So, it’s like, “I want to create something that allows that.”
Kate Holmes:
So, I created the business targeting people in their 20s to early 40s, because spending all the years that I did talking with people, I learned a lot of what I don’t want to do. I talked to so many people, even if they were well off in their early 60s that again, worked their entire career, missed their kids growing up, didn’t take vacation. I was like, “I don’t want to do that. I want to hit those people when they’re making those major life decisions.” So, I did that.
Kate Holmes:
The first year, the average age of my clients was 57. It was fascinating. I even had high net worth clients that had $10 million plus. I was working with professionals and radiologists and major business owners. It was fascinating, because they loved that I had no conflicts of interest. They loved that I wasn’t managing assets and that they could call me for anything. I did it also in a modular way, because again, that whole doing everything at once, it’s too overwhelming. Everyone’s like, “How do we get advice that sticks?”
Kate Holmes:
So, I was like, “You don’t do everything at once. If you’re changing anything else in your life, if you’re going on a diet or exercising, you don’t do it all at once.” So, I cut everything down into monthly and we just tackle one thing a month. We don’t move on until that’s actually done and then that builds momentum. All these things that we know about how do you create habits and everything, I brought that in and I loved it. I wanted to keep building it. It was, I think, easy for me to find clients in that time because nobody else was doing it. So, we’re spread pretty quickly and people kept referring.
Kate Holmes:
My mom even referred a lot of clients, because they never did financial planning, but it was just because I started speaking out in the media so much and other financial planners are like, “How do you do that?” I was consulting at multinational firms around the world and speaking internationally. It got to a point where I realized I could make a bigger dent in the profession by helping more advisors better help more people than I could in my own business.
Reese Harper:
I mean, during that time, you were probably asked to get involved with or got involved with Financial Planning Board of Standards or the CFP Board. Is that correct?
Kate Holmes:
Yup.
Reese Harper:
So, did that let you see a different way to have impact?
Kate Holmes:
So, CFP board, I have been on the Women’s Initiative Council since it was formally designated a council in 2014.
Reese Harper:
So right after you started your firm.
Kate Holmes:
I’ve been on the council since then. I still am. I’m still part of the Women’s Initiative Council. So, that’s carried throughout. Financial Planning Standards Board was funny. I was actually speaking at a national roadshow in South Africa. I was a keynote speaker and I met the CEO of Financial Planning Standards Board, who was also down there presenting. The day I left for Africa, my husband moved us to Denver. So, I asked him, I was like, “Well, where is FPSB located?” He said, “Denver.” It turned out the headquarters was six blocks from where we moved.
Reese Harper:
No, that’s cool, just convenient. You’re still involved there or not?
Kate Holmes:
I’m not. No. So, I started out consulting there for about a year. That was a whole lot of fun. Again, I love all the cultures and the global stuff. And then they ended up creating a role for me and were super supportive and said, I could keep my financial planning business and I could still fit in client meetings. But in all honesty, there’s so much work to be done at the global level overseeing CFP certification of 26 countries and trying to grow to 40 by 2025. I was like, “I don’t want to stretch myself too thin.”
Reese Harper:
Okay, okay, that makes sense. And then the most recent foray is your current firm, Innovating Advice. I’m just going to call it a consulting practice. Is that fair?
Kate Holmes:
That’s fair.
Reese Harper:
So, who’s the audience for that practice?
Kate Holmes:
So, I realized after I left FPSB… I got to travel all over the world. I’ve been in 35 countries, worked with financial planners, worked with amazing people. It’s great work that they’re doing. But I realized that being at the global standards level is really far removed from working with practitioners, which I love and helping with their businesses and bringing innovation. It dawned on me that with all the travel and everything I’ve done, I’m one of very few people that have the experience that I have. So, whether I’ve been at a conference in Russia or Brazil or Bulgaria or South Africa, I continually have the same conversations.
Kate Holmes:
I realized all around the world, everyone thinks they’re in their own lane, but actually, we’re all on the same road and we’re all going in the same direction. There are so many more similarities in how financial planning is progressing around the world than there are differences. So, I wanted to bring those conversations together. So, I started the Innovating Advice Show Podcast a little over a year ago and feature innovative awesome financial planners from all over the world who are doing such cool things from, “How do you do really great client experience stuff? How do you niche down? How do you do marketing? How do you switch over your fees?”
Reese Harper:
That’s awesome. So, where your heart’s at right now is helping advance the industry through interacting with firms directly, trying to figure out whether it’s fee billing, whether it’s positioning, whether it’s client experience. You’re just trying to find the way that you can use your experience to help augment their business. Is that a fair summary?
Kate Holmes:
Yeah. Honestly, there is a lot of good that came out of the pandemic. Everything that I’m doing now is actually directly related to the fact that we had the pandemic and the people that I’ve met. As many people I knew around the world, my web of people has gotten exponentially larger. I’m meeting so many amazing people that I’ve since partnered up with that are looking at a lot of the challenges in the profession. There’s a whole lot of talking that people do and that we’ve all done, right? We’ve all been part of conversations. When are we going to get to the doing something about it? So, that’s really my big focus is moving from talking to doing.
Kate Holmes:
So, one of the initiatives that I’ve got, so I just launched a brand new community in the US called the IA or Innovating Advice Community. That’s actually a sister community of one in the UK called Next Gen Planners. They’ve got this great initiative that they started last year. We know one of the big challenges you go to financial planning conference and not only is it the same speakers, but they all tend to look the same. We keep talking about, “How do we get more diverse people?”
Kate Holmes:
So, they realized instead of, for their own annual conference, paying to fly the same international speakers over and paying their heavy speaking fees, they’re going to reinvest that into actually getting coaches and putting people with little to no public speaking experience in financial planning, training them to actually deliver a presentation. So, that’s going to be a global conference going across South Africa, North America, Australia, and the UK, where we’re taking financial planners around the world. So, stuff like that that we’re like, “How can we really truly make a difference and do awesome things with impact?”
Reese Harper:
Okay. So, I’ve got a lot of questions. We’ve got through your background now, super interesting background. We’ve got volunteer service. We’ve got board experience. At global standards level, we have some foray into a new model of advice and modular/micro interactive planning. You’ve got a lot of background. I’m going to try to pull from some of this and expose maybe some of your philosophy to advisors now in some of these different areas. Let’s go back to Belmore. When you decided to start your own firm, what did you learn about this modular/micro interaction planning paradigm? What did you learn about that?
Kate Holmes:
I think it’s fantastic. Here’s the thing, I’ll say across the board and I know I railed on AUM and all that. Different things work for different people. So, I fully recognize my own bias in things, I but I’m totally open to it. I’ve had lots of conversations with different people. People like different music. Different things work for different people.
Kate Holmes:
But I think the modular planning thing is super, super powerful, because it builds that momentum and it builds so much stronger relationship. I’ve talked with so many people over the years that have worked with financial planners. They’re like, “Yeah, I’ve paid him five grand up front and they did a lot of work and hand me this document. Now, I talk to them twice a year for an hour, just check in.”
Kate Holmes:
There’s not a real relationship there. A general statement, that’s definitely not the case across the board. I don’t really love long meetings. They exhaust even me. I have so many meetings that are 20 minutes. I’m like, “Let’s focus on this one topic. Let’s get it done. Let’s keep moving forward.” And then that just built so much stronger relationship that I got invited to a client’s 50th birthday, I got invited to another client’s child’s first birthday.
Kate Holmes:
You just get so much more intertwined in their life that when something happens, employee benefits change or they get a document they don’t understand, they don’t feel like they have to wait for that annual or semiannual meeting. It’s inherent. They just call you.
Reese Harper:
How did your pricing models change when you were there? Did you have the same pricing model the whole time, or did you vary it?
Kate Holmes:
Like everyone, you start out way undervaluing yourself. I don’t know how that’s going to work. So, I think I started out at something probably $100 a month or $150 a month or something.
Reese Harper:
So, it was a fixed fee for access to you. You never did hourly.
Kate Holmes:
No, no, I didn’t want to do hourly, because then you’re chasing that. I know people with incredible hourly businesses that have been wildly successful. I’ve even got prospects that come to me that want the hourly model, but I ended up going pretty quickly to… I think it was $1,500 up front. Because even if you’re doing modular, there’s a lot more work upfront and I wanted people to be committed. We know psychology. If people don’t pay for things, they don’t value them. So, $1,500 upfront and then $250 a month.
Reese Harper:
Okay. And then did you find yourself ever needing overtime to raise fees, because your business got better, you were doing more, and then you were like, “I’m being undercompensated for the way I used to do it”? Because you’re probably innovating like crazy along the way, delivering more and more value. At some point, you had to look back and go, “Oh, wow. I probably need to raise that.” Did you ever have to go through fee increases, or were you able to just keep grandfathered people in and then raise fees on the new people?
Kate Holmes:
Yeah, I didn’t raise fees on any existing clients. Maybe I did, the people that start out at the very beginning. But the other thing that is really important and I’ve talked with a lot of financial planners around the world is being really, really clear on what you provide and how it works and having those clear boundaries. I learned that in the beginning, some clients called way too often or treated me like tech support if they couldn’t figure out how eMoney worked. I actually had to let a client go, because that’s all they ever do was calling and asking me technical questions. I was like, “This isn’t good.” So, being really specific.
Kate Holmes:
So, even if you have a maximum of three different service levels, which I had two, I think, then let people know. If they start to creep up and need more, then it’s not that you’re raising fees. You’re just saying, “Hey, Mr. Jones, you’re now moving into our platinum level of service. Let me know if you’d like to go that route and we can do that.” Or if they start out really complex and then things slow down, you can say, “Hey, we’ve got all the complex stuff handled. Let’s actually move you down into here.” So, that changes the conversation. That way, clients don’t think their fees are going up. They understand that they’re just moving into a different level of service. So, service model, to me, that’s a huge thing.
Reese Harper:
I can totally relate to your emotional connection with not going down the AUM route. I can totally relate to that. I’ve experienced that many times in my career, just going, “This is not correlated at all to the work I’m doing as a financial planner.” To some degree, it’s correlated to complexity, but not as directly as the fee structure would have you think. But I run into a lot of people that run fixed fee models that then go, “This has been harder than I thought to scale, getting people to come in underneath me and work on this model. Clients were willing to pay me that, but I guess, I was a little more experienced, a little more seasoned.
Reese Harper:
I got this newer advisor that has a little less experience than me. I think I have to lower my fee for them to be willing to pay to that person what they were willing to pay to me.” I see a bunch of consumers still opting in for AUM based models. A lot of consumers are like, “It seems like there’s a conflict of interest there, but I like the idea that maybe the planning fee goes away or the planning fee goes down or as I get more AUM with you, I’m not having to write checks.”
Reese Harper:
At Dentists Advisors, for 10, 15 years, we’ve really struggled to decide, “Is there really a better model here?” Because we’re delivering a ton of value. A lot of clients, given the option, are still opting for paying less planning fee and billing the assets, add a little bit higher rate. What’s your feeling on all of this? This is a big topic that I’m sure a lot of advisors are debating in their own firm. What’s your general feeling as a consultant? As you’re feeling as a consultant, is that the same feeling you had when you’re a practitioner? How has that changed if so?
Kate Holmes:
It’s definitely evolved over time. That’s the thing. Working with so many people all over the world and just seeing how different things work and whether it’s regulatory based, we have a lot of limitations in our own thinking that we put on ourselves of people saying, “Oh, nobody’s ever going to go for this in my region or my country.” So, it really does depend on what works for each business. But the thing that you said there a few times, Reese, is the value that you were providing. So, where I have the big challenge and I did in my mom’s business and she knows this is it was an assets under management only. There was no financial planning. There was no anything. That’s what just really got in my head and bothered me is we’re putting together these portfolios.
Kate Holmes:
But as I went through a CFP certification program and became a CFP professional, which I still am, looking at this, now, I was like, “What are we creating portfolios for? We don’t know anything about these people. So, we don’t actually know what their required rate of return is. So, how is this working?” Tracking everything the way I did, knowing how much the clients with $30 million were paying us versus the clients with $300,000 and how much they called us and how much service they needed. It just didn’t make any sense.
Kate Holmes:
I couldn’t confidently say you should be paying us this amount of money. That’s where the challenge comes in. So, if you are actually providing true value beyond just managing investments, then that’s a different conversation. If the clients want to pay on an AUM thing, that’s great. It’s good to have choice. I don’t think we should ever just have one thing, because different people are going to want different options.
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Reese Harper:
Yeah, it just seems like it would be way easier for all of us if pricing were more transparent, even the AUM model, which I’m still an advocate for to some degree, because it’s the experience I’ve had of scaling up a firm. It’s worked and it still works. But I look at it and I’m like, “It’s still very difficult. Even if you are very clear on your deliverable and you’re very clear on your business model and you’re very clear on the hours that it takes, there’s always a point where the younger clients with the least amount of AUM, they either have to pay a bigger planning fee than they’re comfortable with or you’re going to have to eat it for a little while, while they build up assets.”
Reese Harper:
It’s almost like asset management fees are a way that to finance your way down-market to people that don’t have means. I don’t love that, because it puts a lot of pressure on me as a business. I’m like, “Dude, I’m losing my shirt.” But then on the other side, it’s like, “Well, you’re at year three or year four, then I can pick up my margin. I know I’m more profitable than I need to be on the back end, but I lost my shirt in the front end.” Well, if I give clients the option of paying me $500 a month right now, I might have a conversion rate that’s much lower than if I say it’s $195 or $295 plus an AUM fee. So, for me, it’s just really difficult to get down-market quite as far if I’m using financial planning fees as the only way to be able to access that market.
Reese Harper:
In my own practice, one thing that’s been challenging is I feel like AUM provides a way for me to access people earlier in their career when they don’t have as much money. They’re essentially underpaying me now. Over time, they’re going to overpay a little bit. But as long as I’m delivering a lot of value, it’s sometimes easier to get people to engage when the fixed fee is lower. I personally don’t advocate for AUM-only models. I don’t think that gets the level of commitment that financial advisors and clients need from their advisor.
Reese Harper:
But if I’m charging $500 a month versus $200 a month, I’m going to get night and day different adoption rates and conversion rates on the front end. Meaning $500 a month, most people tell me, “Sorry, I can’t afford it, but $200 a month, yeah, I could do that.” Well, if I do $200 a month without any AUM fees, depending on the level of complexity I’m engaged in, it might not be profitable. You see that and you see that challenge. It sounds like you’re more open to it maybe now as a consultant than maybe your first few months of looking at it as a practitioner.
Reese Harper:
Why do you think your philosophy has changed a little bit? Because I sense the energy from you when we were first talking from that fixed fee model, that transparency. I love it, too. I think I know your answer here, but I’m curious, what made you change over time and become more tolerant or are you just letting advisors off the hook and they need to do fixed fee?
Kate Holmes:
Well, I’ll say two things. First, I don’t advocate for advisors taking on clients or keeping clients that aren’t profitable. I got a lot of arguments with that, but it also so often doesn’t end well. This is the thing. I always turn around. I always encourage advisors, turn everything you do around and be on the other side of it. Would you want to know that you are an unprofitable client? So, maybe you’re the last person that’s going to get a call or you’re not going to get the same service. Wouldn’t you rather go somewhere where you are at the same level as everyone else?
Kate Holmes:
So, when people are thinking about this, you think about the AUM. Really when people are younger, the thing that really dawned on me about that is even working with people that had a good chunk of money, even $1 million plus that was tied up in their 401(k) plans or deferred comp or into their business, they didn’t actually have assets to manage. I was like, “These people still need advice. There isn’t an option to take an AUM fee.”
Kate Holmes:
So, that’s where we have to think about by doing AUM-only, we’re actually excluding a huge portion of the population from being able to get advice. So, if you are an AUM firm, this is a great way to actually bring in those younger clients, allow this modular planning or the fixed fee model. That way, they can actually build a book themselves working with clients that they relate to and get some revenue in in a way that actually is profitable at the level that they’re at.
Reese Harper:
I totally agree with that. I personally feel like we’re well past the days where financial planners can just say, “I have an AUM minimum.” We can’t do that anymore. This is my opinion now, speaking as… I can’t. I’m not a consultant. So, I can just opine. But I think you can’t have AUM minimums without eliminating some really great clients. I would rather have a fixed fee minimum than an AUM minimum. That’s all. It just seems just as easy.
Reese Harper:
Just in the past, we haven’t had the technology and the billing mechanism. It hasn’t been as easy, but it seems like the debate for me is whether AUM fees present a huge conflict in that world where you still have a fee minimum, because I’ve watched a lot of my employees now for quite some time and I just don’t see them responding to AUM incentives. I don’t see them responding. They’re not giving advice with that context. It’s just the way we bill, some clients are turned off by it. Some clients like it. Some prospects won’t engage you at all if you have an AUM fee.
Reese Harper:
You just got to decide where to position yourself in the market. The same people though that say no to AUM fees at all and they’re very focused on fixed fees, they tend to be quite particular in terms of their demands. They can be very fee sensitive if you ever tried to raise your fee too. So, I’m always still in a tough middle ground here going, “I just don’t see enough evidence yet for fixed fees taking over AUM fees completely.” I’m curious how you see that as a consultant.
Kate Holmes:
I don’t think they’re going to anytime soon. Again, it’s because different people are going to want different things. There are some people out there that only want their assets managed. They don’t actually want to talk about the other things. Possibly [inaudible 00:35:45]. That was actually the challenge that I had in my mom’s business. That was my breaking point when I was like, “I have to leave and do something, because we kept trying to implement financial planning.”
Kate Holmes:
But the clients, because they’ve worked with the firm for 20 years and they’re like, “You’ve never asked me about this stuff. Why do you ask me about it now? We’re only talking about investments. You just tell me what the stock market’s doing.” They were so resistant to broadening that conversation. I was like, “Okay, that’s fine.” I was like, “They’re totally comfortable with AUM, and they didn’t want to do financial planning.” So, I’m not going to put that on them. Along those lines, Reese, you asked earlier about how do you grow that flat fee, fixed fee, monthly fee business and how challenging it is. We’ve seen it be challenging for a lot of people.
Kate Holmes:
One of the things I’ve said for years, I’m still fascinated by this and I don’t know if I’ll do anything about it at any point, but I genuinely don’t actually believe that all of the people that are starting their own businesses using that model or any other one for that matter truly want to be business owners, right? Everyone I talked to, they’re like, “Oh, I wanted flexibility. I want to be able to do this stuff.” I was like, “There’s pretty good thousands of-”
Reese Harper:
There’s a lot of ways to get flexibility, man. Yeah.
Kate Holmes:
But I was like, “If all of you are willing to put up the capital and the time and the energy and the effort, how about instead of being inefficient… Everybody doing that themselves is highly inefficient. … why don’t we actually come together with more of those people? One person is going to be great at marketing. One’s going to be great at operations. One’s going to be great at compliance. Actually, leverage what everyone is good at. So, that you can build a more profitable business rather than having everybody play all of those roles in their own small firm.”
Reese Harper:
I feel like financial planning industry is just in one of those cycles, right now, where we were in firm models before, brokerage house days and wire house days. And then all the incentives were just so bad that a lot of good people were like, “I got to get out of this. This is bad for the client.” Now, you have all these people in boutique siloed one-off models with no efficiencies, no partnerships, no specialization. We’re all duplicating expenses of admin time. It’s really overhead heavy. I could see a big shift over the next 10 years around we’ll call it a more firm, aligned, corporate aligned trend. I think it’s wise. Kate, I’ll hit you with a couple of last questions. One of them is, “What do you want to see change in the industry more than anything?”
Kate Holmes:
I just want to see people open up their minds a bit more. It still fascinates me how many things we see in other professions and somehow financial planning, even very forward thinking people in the rest of their lives, they get inside their business and they’re like, “No, we can’t adopt new things or evolve.” What? Even online calendar scheduling, I’m still fascinated how many people don’t do that or have that on their website. Clients want convenience. Even people in their 70s want convenience.
Kate Holmes:
I said it earlier, we put so many limitations on our own thinking. We hold on to so many things from the past that aren’t beneficial to anyone. I had Penny Phillips on the podcast recently. She said a few times, “Throughout the pandemic and everything, everything has changed and nothing has changed.” I love that if you just let that linger in your brain.
Reese Harper:
One thing you might find interesting is I’m spending about… Outside of podcast interviews, which I do about two of these a month or three a month. I’m on new advisor sales calls for our financial planning software. Our software is quite different from what people are used to. There’s no Monte Carlo simulations. There’s no five-year forecast models. There’s no effective tax rate report. There’s no-
Kate Holmes:
There’s Reese.
Reese Harper:
It’s very interesting to see, “Hey, everything you need can be understood from a much simpler set of data.” One of the problems advisors are facing is they’re saying things like, “I can’t get clients to engage. I can’t get clients to update data. I can’t get clients to participate with me. Client engagement is gone.” So, I’m like, “Our software is designed on their cell phones. So, it will work as a native mobile experience, so that they can type in things that’s very easy for them to engage, because it’s easier to engage on a phone than a computer.”
Reese Harper:
“Okay, great, but I’m used to working on desktop,” he’s like, “I only work on desktop. I only use my computer for everything.” I’m like, “Okay. Well, the problem you said you’re having is that you can’t get your client to engage and they’re not using the software that you currently have. They’re not providing you data through it. They’re not keeping it updated. They’re annoyed.” I’m saying, “Try letting them put it on their phone and see if there’s any difference in that. Just test it with me.” “I don’t know,” he’s like, “I’m used to using my computer. I use my desktop.” I’m like, “This is for your client.”
Kate Holmes:
Exactly the point, right? They’re not flipping it on the side and thinking, “Me as a client, what do I want? What would make me engage?”
Reese Harper:
Yes, exactly. I’m just supporting what would you like to see changed in the industry. Your answer was I like to see people think a little bit differently, maybe be open to some new ideas, open to some different ways of thinking. It’s a really good piece of advice. It’s definitely something that I think a lot of professions struggle with. It’s not just ours, but professions who have had a 20-plus-year ingrained way of doing something a certain way.
Reese Harper:
Okay, the follow-up question to that would be, “What do you think the real challenge is for you then as a consultant to get people to open their mind and a new way of thinking and be more open to this? What’s the real challenge that you’re facing? How are you going to solve this?”
Kate Holmes:
Well, I’m hopefully solving it through the new community I started, the Innovative Advice Community, because I’m bringing together all the people and they’re all over the country and all over the world that have those little voices in the back of their head that’s like, “Okay, we’ve done it this way for a long time, but I do want to explore if there’s another way. I want to make sure that we’re continuing to be the cutting edge.” Even when I was in my mom’s business, I was sitting there looking around and I was like, “Am I crazy? Why am I thinking like this?” I didn’t know how to find those people.
Kate Holmes:
So, anybody listening out there, if you don’t have your people, if you’ve got those voices saying you want to try something different or do something different, find people that have that same thinking and get together and tell them, verbalize it. Again, we know with habit building and taking action, you have to write it down. You have to tell somebody else. You have to have that accountability and do it in a safe space to learn from other people that have gone through that. That’s the biggest thing. We see this through our video creation masterclass.
Kate Holmes:
I love video for advisors, because, Reese, your audience is RIAs. Most people and my family, friends, people I just meet out and about have never heard of an RIA, have no idea what it is. We get in this echo chamber and talk to each other. We don’t realize that the message of the great value that all these independent advisors provide, that is not getting out with the public. People don’t know that there’s anything other than a TD Ameritrade or Edward Jones. So, we need to get better at that and make sure that we’re thinking outside of our own brains and doing it with other people that also want to continually challenge themselves.
Reese Harper:
Well, I could take a lot more of your time. Next time we chat, I want to talk about values and how financial planning often gets relegated to this functional set of jobs, taxes and forecasts and everything when really what I bet you would love to talk about too and I can sense that you have a lot of opinions about this is where values come into play. How do you understand a client emotionally? How do you get to the point to where they’re really bought into this plan, this idea? Because you had to do that in a lot of different ways. I’m sure you’ve seen that globally as well.
Reese Harper:
So, I’m going to put that on our next conversation list, because I do you want to have that. But I’ve already taken enough of your time today and I’m just excited to have a new friendship that we can keep exploring. I’m going to try to figure out if I can get in that community that you mentioned and start poking around in there.
Kate Holmes:
Yeah, fantastic.
Reese Harper:
Kate, I’ll let you leave everyone with final words. If you have any you’d like to leave, we’ll part here.
Kate Holmes:
Final words would be if you have something on your to-do list that stretches yourself this year, especially when it comes to building your brand or pushing outside of your comfort zone, write it down, tell somebody about it. I just encourage everyone to do one thing that helps build your personal and professional brand to push this profession forward in 2021.
Reese Harper:
Thanks, Kate. That’s awesome advice. I look forward to having you again on soon.
Kate Holmes:
Awesome. Thanks, Reese.
Abby Morton:
Next time on Elementality.
Reese Harper:
It’s hard to build a process. It’s hard to standardize anything, because advisors are so skilled and so thoughtful about their clients, what they end up doing a lot of times is they build a custom process for most clients. That’s the best outcome.
Chad Jardine:
No two clients are going to be identical, right?
Reese Harper:
Yeah. So, because they don’t want to sacrifice anything when it comes to the customization of each customer, then it’s really hard for them to get something consistent to work across the whole spectrum of clients. So, that’s where I think our Element system was born from.
Abby Morton:
You can learn more about the Elements Financial Planning System at getelements.com/meet and schedule a time to speak with one of our friendly financial planning experts. Elementality’s executive creators are Reese Harper and Chad Jardine. Elementality is produced by Abby Morton and directed by Jordan Haines. Have a good one.